Whether you are just starting your practice, are in a solid practice, or even close to retirement, there is a trend across the country for small business owners who want to either own their building or a commercial condominium. Factors such as low interest rates, tax and financial benefits, SBA loans and pride of ownership are among the reasons why owning your office space has become so attractive.
How do you determine whether or not to buy or lease? Business savvy physicians take an entrepreneurial approach to examining all the angles. They look for opportunities that match their unique needs and the stage of practice they are in. Common reasons to buy are:
Real estate generally appreciates over time – if you bought a piece of property this year, you can get a 25 year mortgage on it. In most cases, established physicians are able to put more than 10%+ down so the payments are not too high. You can lock in your occupancy costs and build equity.
You can make substantial tenant improvements to customize your business – depending on the physician specialty, you can customize your reception area and exam rooms. There is such a hot demand for medical office/condos that many doctors want to do this, especially in the smaller 300-6000 size spaces.
Leverage your money – The SBA 504 loan program is the most popular with 10% down. They are the principal financing vehicles for small businesses. Fifty percent of the remainder is loaned by the bank and a maximum of 40% is provided by the SBA.
Tax benefits – There are many tax deductions including depreciation.
Investment diversification – become a landlord not a tenant – you can lease a portion you are not using and it becomes income and later, an investment property. Over time, you will pay the loan down so when you retire the building becomes equity and provides cash flow. When you retire you can lease back your office to another doctor.
Asset protection – You can put your building into an LLC which gives you some protection in case of litigation
You will want to look at borrowing capacity, ownership structure, required real estate investment costs, capital required, risk tolerance, security concerns, tax profile, mission critical space requirements, building management and other criteria.
There has been a tremendous surge of owner/user building sales over the last three or four years, especially in commercial condos. In a market like Sacramento with a growing small business economy, many entrepreneurs and start-up companies buy their building and lease it back to their own company. You may want to investigate and decide whether or not it is time for you to buy.
Nick Sadek is a real estate broker specializing in commercial/residential real estate and investments for over 20 years. He can be reached at 916-966-444 or at firstname.lastname@example.org.